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For example, 95 percent of the pharmaceutical prescriptions filled each year in the United States are for drugs you are expected to take for the rest of your life—because drug companies find it much more profitable to create customers for life by producing maintenance drugs that treat the symptoms of diseases versus drugs that cure diseases.  

Medical providers from the individual doctor to the largest hospital are paid for their procedures and time spent versus their outcomes or health of their patients. However, the major reason that the U.S. healthcare industry costs so much is because the employers who pay for most U.S. healthcare do not have a financial stake in the long-term health of their employees. 

Employees used to stay with one company for 25 years or more. Today, the average employee is projected to change jobs more than 10 times over his or her 45-year working life. Most of the major illnesses on which you can spend $1 today to save $100 tomorrow (like heart disease from obesity or cancer from poor nutrition) will not show up until an employee is long gone or retired, at which time the $100 cost is picked up by another employer or by taxpayers through Medicare. 
 
As medical costs have escalated, employers have, in effect, told their medical providers to pay for only those expenses related to keeping or getting the insured back to work—and this does not include paying for the prevention of a disease that will not manifest itself during the expected tenure of the employee with the company. 

Is Employer Health Insurance Working? 
Rising healthcare costs, driven mostly by employer health insurance, challenge our current way of offering health insurance in three main ways:  

1. For you and your family, rising healthcare costs mean less money in your pockets and forces hard choices about balancing your children’s education, food, rent, and needed care. 
2. For your company, rising healthcare costs make it more expensive to add new employees and reduces budgets available for marketing, customer service, and product development. 
3. For the government, rising healthcare costs lead to reduced funding on other priorities such as infrastructure, education, and security. 

This paper walks through how we got here, where we are going, and what you can do about it. 

How Employer Health Insurance Began 
Prior to World War I, Americans paid directly for their own medical care and most babies were born at home. In the period between World War I and World War II, the medical industry developed new life-saving procedures, and births moved from the home to the hospital. This increased demand for catastrophic and maternity care created a need to help patients finance that care. In 1929, Blue Cross hospital insurance entities began offering guaranteed hospital services for a fixed fee, and in 1930, Blue Shield entities began offering reimbursement for expensive physician services. 

As World War II ended and millions of Americans returned home to start a family, suddenly everyone wanted health insurance. At that time, health insurance really was insurance. It provided coverage only for major and unusual items like emergency hospitalizations and births that people could not afford to pay for themselves, but not for regular items such as doctor visits and prescription drugs. This was similar to today’s auto, life, and homeowners insurance where you only receive a benefit when you have an accident, a death, or a catastrophe—your 
insurance doesn’t cover any regular maintenance items like oil changes, doing exercise, or fixing a leaking roof. Imagine what would happen to the cost of oil changes if customers didn’t have to pay for them directly (no need to compare prices), but rather showed their auto insurance card and had the insurer pay for it—and then imagine what would happen to the cost of auto insurance as the increased cost of those oil changes was reflected in the auto insurance premiums. The same dynamic has driven U.S. healthcare spending since World War II. 

During World War II, the U.S. federal government instituted wage and price controls on many goods and services. Having witnessed the effects of hyper-inflation on Germany post-World War I, U.S. leaders were concerned about potential post-World War II inflation and were determined to maintain wage and price controls after the war. But labor and U.S. labor unions had different ideas. 

They had seen their wages frozen while many business owners and government suppliers had made millions during the war, and labor was considering calling a general strike when the war ended. 

In 1945, in order to grant a concession to labor without appearing to violate wage and price controls, the federal government exempted employer and employer-paid health benefits from being reported as personal income by employees. In effect, the IRS allowed employers to pay employees off the books or under the table with healthcare. This paved the way for wage increases in the form of nontaxable, employer-sponsored health insurance or healthcare. Unions started demanding nontaxable health benefits to cover every conceivable medical product and 
service, including incidental items like doctor visits and prescription drugs that employees could have afforded to pay for themselves. 

Almost overnight, employer health insurance went from covering only items that patients could not afford themselves, to covering every conceivable medical product or service. Everything became covered—from the smallest prescription drug to an ever-expanding list of medical procedures, some with dubious patient benefits.  

It’s easy to see why employees preferred tax-free compensation to taxable wages. In 1952, the U.S. marginal federal personal income tax rate ranged from 42 percent on income over $10,000/year to 92 percent on income over $250,000/year—averaging 50 percent or more for most skilled workers or executives. Who wanted a wage increase when the federal government alone, before additional state and city income taxes, took 50 to 92 percent of your wage increase? Employees and executives bargained away wage increases for health benefits until they made sure 
every possible health-related item was covered. Employers didn’t seem to mind because every $1 they gave employees in health benefits was financially equivalent to giving them the equivalent of $2 on average in taxable wages, and up to $10 if they were a high-income executive. 

The Growth of Employer Health Insurance (1950s - early 2000s) 
From 1950 to 2000, U.S. employers spent money on their employees’ healthcare as if they were drunken sailors on shore leave—seemingly not caring about the cost or about the outcomes of each prescription or procedure. Led by employers’ largesse and labor union concessions, annual U.S. healthcare spending rose from about $500 per person in 1950 to $5,000 per person in 2000. In 2000, when employers finally took notice, it was too late—U.S. healthcare spending exceeded $1 trillion and the cost to the largest employers as a group exceeded what they earned in profits, threatening their very existence. 

The Decline of Employer Health Insurance (2000s - Today) 
Then, it got worse. From 2000 to 2014, U.S. healthcare spending rose from $1.25 trillion ($5,000 per person) to almost $4 trillion ($12,500 per person). In 2009, largely due to the costs of providing healthcare for their employees, both General Motors and Chrysler filed for Chapter 11 bankruptcy protection. 

Employer-provided health insurance has been hit by massive inflation in recent years, making it less affordable for employers and employees. From 1999 to 2014, the annual premium that U.S. health insurance companies charged for employer health plans increased approximately 190 percent to roughly $16,830 per family. For single coverage, the cost has increased about 174 percent to $6,025 per single (Kaiser Family Foundation, 2014). ​​

The Growth of Individual Health Insurance (Today) 
Due to recent federal changes mandated by the Affordable Care Act (or “Obamacare”) to the U.S. individual health insurance market, individually-purchased health insurance is now better for you, your family, and your company. The new individual Health Insurance Marketplaces in every state feature guaranteed acceptance at no extra cost for pre-existing medical conditions, a wide choice of plans, portability between employers, and provide coverage equal to or better than the most generous employer plans. 

Moreover, for most employees earning less than $100,000 a year, the cost for each family member is heavily subsidized by the federal government. In 2014, 70 percent of the seven million people who enrolled their families through the federally-run Health Insurance Marketplaces paid less than $100 per month in out-of-pocket premiums for their entire family. 

These benefits for consumers exist because of: 

1. Trillions of dollars in federal subsidies to consumers who purchase individual health insurance plans. 
2. Hundreds of billions of dollars in federal subsidies to insurance carriers to artificially reduce the cost of individual health insurance—all at taxpayer expense. 

Over the next 10 years, 100 million Americans will move from employer health insurance to individually-purchased health insurance.

Conclusion – How You Can Influence the Future 
1. Employees of All U.S. Companies 
You and your family need permanent, portable health insurance to get access to medical care, save money, and protect yourselves from our nation’s failing employer health insurance system. 

What You Should Do About It: 

• Purchase an individual health insurance policy from your state’s Health Insurance Marketplace, from an online website, or from a broker. 
• Ask your employer to cancel their group health insurance policy (if they offer one) and adopt a health benefits program to give you money for for your individually-purchased premium, or a portion of your premium. 

2. Owners of Small and Medium-sized Businesses 
If you are the owner or manager of a small to medium-sized business (1 to 999 employees), one of the biggest challenges you face in recruiting and retaining top quality employees is providing health benefits. Today, the majority of small to medium-sized businesses can no longer afford employer coverage. 

What You Should Do About It: 

• Cancel your group health insurance policy (if you offer one). 
• Adopt a health benefits program to give your employees money for their individually-purchased premiums, or a portion of their premiums. This is also called employer-funded individual health insurance or Defined Contribution Healthcare. 

3. Insurance Agents, CPAs, and Financial Consultants 
You need to be able to advise your clients to help them and their employees get access to medical care, save money, and protect their families from the failing employer health insurance system. Additionally, a new market of 50+ million individual health insurance consumers has emerged that will double in size to 100 million people over the next 10 years. 

What you Should Do About It: 

• Help small and medium sized clients cancel group health insurance, and transition employees to individual health insurance policies. 
• Partner with a Defined Contribution Healthcare provider to help your employer clients give money to employees for individual health insurance. 

During this period, many employers stopped providing health benefits entirely. U.S. jobs offering health benefits fell to 55 percent of all jobs in 2014, down from 66 percent in 1999. 

The future is not bright—the average cost of employer health insurance is expected to reach approximately $20,000 per family and $8,000 per single employee in 2016. On average, employees 
will be paying more and getting less in terms of higher deductibles, higher co-pays, and higher out-of-pocket (OOP) maximums. 

​

Is Employer Health Insurance in America Working?

and How You Can Influence the Future

Introduction

Health insurance is the single most important consumer financial product Americans purchase today. One wrong step can bankrupt even the most affluent family. Yet, most Americans don’t pick their own health plan or doctor network. 
Rather, they get a one-size-fit-all employer health insurance. They aren’t in control of their healthcare. Due to recent reforms to the individual health insurance market, it no longer makes sense in the long-term for employers to continue offering employer health insurance plans to employees. 

When you drive to work today look around at the people, cars, and buildings you pass by. Between one-sixth and one-fifth of the people you pass on their way to work, representing 17.5 percent of our gross domestic product, work producing a product or service nobody really wants to buy—healthcare, or more accurately sickness care, since what most Americans call healthcare has very little to do with health. 

Despite the fact that the U.S. spends two-and-a-half to three times per person what other developed nations spend on healthcare, the United States is the unhealthiest developed nation on earth. There are many reasons proposed for why 
this is so. 

Contact Us - info@dropthegroup.com

Defined Contribution: Drop Group Employer Coverage and Switch to Individual Health Insurance

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